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Headache No. 157/159

New FASB rules on fair value accounting are expected to lead to volatility and restatements in the area of derivatives

By Robert Rosenberg | Updated on July 25, 2007

Financial Accounting Standard (FAS) 133, the accounting rule adopted in 2001 applying to derivative instruments and hedging activities, has already been the main culprit behind no fewer than 200 corporate restatements. Now, as companies are gearing up to comply with two new accounting rules relating to the fair valuation of assets and liabilities, all finance executives can say is, “Here we go again.”Experts in derivative accounting, like Jiro Okochi, CEO of Reval Inc., predict that FAS 157 and 159 may turn into FAS 133-like migraines and then some. The fair value rules carry their own inherent volatility because they require assets and liabilities to be valued at current marketprices. This is compounded when the prospect of frequent restatements is added.

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